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Last year, First Niagara paid to buy 195 HSBC Bank USA branches across the state. This year, it profited from them.

First Niagara Financial Group said third-quarter profits rose 41 percent from a year ago, mostly because it did not have the merger-related charges it paid last year. But profits would have risen 8 percent even without that savings.

The Buffalo-based parent of First Niagara Bank reported net income for common shareholders of $71.6 million, or 20 cents per share, up from $50.8 million, or 14 cents per share, a year ago. That beat the consensus estimate by Wall Street analysts by a penny per share.

The results from the third quarter last year included $29.4 million in pretax merger and restructuring charges from the HSBC deal. The bank also recorded a $3.5 million gain a year ago from selling securities. Without those special items, the bank’s operating profit a year ago was $66.5 million.

Compared with the second quarter this year, profits rose 12.6 percent from $63.6 million, or 18 cents per share, as the bank’s operating revenues rose on increased assets while expenses and bad debts fell.

Loan revenues rose, but fee income fell. As with most large U.S. banks this quarter, mortgage banking revenues took a dive, as higher interest rates are cutting into demand by consumers for refinancings.

“Our results for the third quarter and the first nine months of the year reflect our continued progress in translating First Niagara’s solid business fundamentals into strong financial performance,” Gary M. Crosby, interim president and CEO, told analysts on a call. “We delivered earnings per share results that were improved year over year and in line with our expectations.”

Crosby has led the bank since the abrupt departure of longtime CEO John R. Koelmel early this year. The bank still has not selected a new CEO, but Crosby said the search continues.

“Our board of directors is certainly aware of the level of interest in the naming of a new CEO,” he told analysts. “The board’s search committee has been very active and continues to meet with candidates who are interested in leading First Niagara, and the selection of a new CEO remains the top priority for our board.”

But while he said the board will “complete the process as quickly as reasonably possible,” he stressed the importance of choosing “the right person to lead First Niagara.”

Operating revenues fell less than 1 percent to $368.9 million, though they were up 1 percent from the second quarter.

Net interest income from taking deposits and making loans rose 2.9 percent to $277.5 million, despite a narrower profit margin on lending. Loans grew 10.4 percent from a year ago to $21.1 billion, with commercial loans up by 12 percent while consumer loans rose 8 percent. The bank originated $379 million in new auto loans during the quarter itself, with 1,200 dealers throughout its four-state franchise after adding several hundred during the last three months. The bank set aside $27.6 million for loan losses, up 10.3 percent.

Fee and other income fell 10.6 percent to $91.4 million, primarily from lower mortgage banking revenues, which plunged 80 percent. The volume of “locked-in” loans dropped 40 percent from the second quarter, while the profit margin from selling them fell 30 percent.

The bank worked to control costs, and expenses fell 13.2 percent to $231.2 million from a year ago. Without merger charges last year, costs were down 2.5 percent on lower marketing, advertising and professional services expenses.

Still, it cost the bank 63 cents to produce $1 of revenue – about 10 cents higher than banks like cross-town rival M&T Bank Corp. aim for. The bank has already consolidated 60 branches in the past two years and reduced branch staffing. But it will invest in staff to comply with regulations that are being strictly enforced. Chief Financial Officer Greg Norwood said the bank is targeting $225 million in quarterly expenses, and will close another 10 branches by March 2014.

“I’m pleased with our expense management so far this year,” Crosby said.

email: jepstein@buffnews.com